Not dead yet
Is a petrodollar worth a dime anymore?
In 1974, Nixon’s Treasury Secretary William Simon took a transatlantic flight to Riyadh, over the course of which he (allegedly) drank so much whiskey that he rolled off the plane dead drunk — and sealed a deal with the Saudi King Faisal: the United States would buy oil from Saudi Arabia and provide the Kingdom with military aid, and in return, the Saudis would plow billions of dollars from their oil revenues back into U.S. Treasuries. And so the petrodollar was born: a U.S. dollar earned through crude oil exports and recycled into dollar-based assets.
Over the past few years, many commentators have declared the death of the petrodollar. The petrodollar is not dead. Its role is different, but it gave us something great.
Petrodollars are no longer the largest driver of the offshore market
For decades, petrodollars were the backbone of the offshore dollar market (basically, dollars in banks outside the U.S.). Gulf states earned dollars from oil sales and deposited those dollars at European banks. The European banks then recycled those dollars as loans to other countries, often emerging markets. IMF research showed that in the 1970s, 44% of earnings from oil sales showed up as deposits in banks, mostly in Europe — and also that the foreign debts of 100 oil-importing developing countries were estimated to have increased by 150% between 1973 and 1977, likely a direct result of petrodollar deposits. In the 1970s, the offshore dollar market and the petrodollar recycling machine were essentially one and the same.
However, petrodollars are less important for creating dollar assets than they used to be. Another IMF study documented that the share of oil revenues converted into deposits at banks fell from 44% to approximately 27% in the early 2000s. I wasn’t able to find more recent figures, so I updated this analysis using Bank of International Settlements (BIS) Locational Banking Statistics data on USD-denominated deposit liabilities at participating banks for 18 oil-exporting countries, divided by annual current account surpluses from the IMF World Economic Outlook database, and frankly the results surprised me.1
Our methodology for the early 2000s (2001–2006) spat out a figure of approximately 21% of oil revenues held as dollar deposits at foreign banks — reasonably consistent with the IMF’s 27% share, given a slightly differing approach. But in the next period, 2007–2013, that share had fallen to approximately 13%. In the most recent period with available data, 2018–2023, it has collapsed to about 6%. Given the data limitations, the estimates likely represent a lower bound rather than the true level of bank intermediation. The directional trend which shows a steady falling share is, however, what matters.
Just to pull out one illustrative year, in 2022, oil exporters collectively earned a current account surplus (more earnings from exports than imports) of $901 billion. From that $901 billion, deposits at BIS reporting banks from oil-exporters only increased by a net of $24 billion. That is a bank intermediation share of 2.7%. So, based on our methodology, oil exporters are no longer putting their petrodollars in banks.
And yet, the offshore dollar credit market continued to grow. More BIS data shows that the offshore dollar credit market stood at $2.5 trillion in 2000. By Q3 of 2025, it had reached $14.2 trillion, a six-fold increase. This growth was steady, interrupted only briefly by the 2008 financial crisis and the 2022–2023 Federal Reserve tightening cycle.
This tells us that the dollar is very structurally resilient. Petrodollars seeded the offshore dollar market; they were the original source of dollar liquidity outside the United States. But the offshore dollar market has since developed its own momentum, driven by corporate dollar bond issuance, dollar-denominated trade finance, and the borrowing needs of emerging market governments and multinational corporations. The offshore dollar market no longer needs the petrodollar to grow.
Petrodollars are also significantly less important to U.S. Treasuries
Petrodollars were designed to create a structural demand for the dollar and U.S. Treasuries. And that they did. In the mid-1970s, the Arab Gulf monarchies became the largest single source of new credit for the United States. From 1974 to 1976, OPEC foreign investments totaled roughly $125 billion, a quarter of which flowed directly into U.S. banks or Treasuries.
Less so today. Oil exporters are still large purchasers of Treasuries but nowhere near as significant for demand as they were in the 1970s. Saudi Arabia, the UAE, Kuwait, and Oman — combined — held $149 billion of U.S. Treasuries in 2012. By 2025, they held $311 billion. While that sounds like a lot, their new purchases only covered 2% of deficit spending in 2025, versus roughly 10% of deficit spending (of just Saudi holdings!) during the first few years of the Reagan administration. Granted, our deficit spending was much smaller back then.
There are more petrodollars than ever, they’re just going elsewhere. In the 1970s, oil revenue flowed into Western banks and U.S. Treasuries practically by default — there were so few alternatives. Today, Gulf states have built some of the largest sovereign wealth funds that deploy capital in ways that would be completely alien to Richard Nixon. Saudi Arabia’s Public Investment Fund manages nearly $1 trillion in assets, with 80% of that portfolio directed at domestic investments and megaprojects. Abu Dhabi’s and Kuwait’s sovereign wealth funds are now ranked among the top ten shareholders in Chinese A-share listed firms, and Gulf sovereign wealth funds invested $9.5 billion into China over the course of 2024.
The petrodollar still exists, but rather than being recycled through London banks into loans for emerging markets like Brazil, it is being deployed into Saudi domestic projects, Indian tech startups, Chinese equity markets, and, most importantly, Premier League football clubs.
But petrodollars still dominate commodity pricing
Petrodollars aren’t what they used to be, but the dollar remains dominant in global commodity markets and that’s really all that matters. Oil pricing dominance has led to commodity pricing dominance and every commodity benchmark, from Brent crude to copper to soybeans, is still quoted in dollars. This pricing convention forces commodity importers to hold and trade in dollars, creating a structural demand for USD independent of whether or not Saudi Arabia buys Treasuries. The petrodollar system is now a pricing mechanism — it matters less where the money goes after an oil sale and more that the sale itself happens in dollars.
China, unsurprisingly, doesn’t love this state of affairs, though their efforts to combat it are marginal in scale (for now). In 2023, China used the digital yuan to purchase one million barrels of oil at the Shanghai Petroleum and Natural Gas Exchange — a token transaction, but the first cross-border oil settlement in eCNY. That same year, the People’s Bank of China and the Saudi Central Bank signed their first bilateral currency swap agreement, covering up to RMB 50 billion for three years, and Bank of China opened its first branch in Riyadh to facilitate renminbi settlement. Then in 2024, Saudi Arabia joined mBridge — a multi-central bank digital currency platform developed with China, the UAE, Hong Kong, and Thailand to enable cross-border settlements outside the SWIFT network.
Russia, meanwhile, has been redirecting substantial oil exports into yuan and rupee settlement. These are all real situations worth monitoring, but in context: around 80% of global oil trade still happens in dollars, and S&P Global forecasts that yuan-based oil trade will take decades to scale meaningfully. Oil exporters are only willing to accept yuan for crude oil if they can spend it, and the renminbi isn’t broadly used in international trade and finance, leaving few places for those RMB proceeds to go.
William Simon passed away in 2000. I hope he is drinking brown liquor in the afterlife. His handshake deal with the Saudis is also dead. What we’re left with is both less tangible and more stubborn — a convention that prices almost all commodities in dollars, embedded in every futures contract, trade invoice, and hedging desk on the planet. The dollar lives. And for that I raise a glass to Secretary Simon.2